The government's decision to change the patent law regarding software has got techies and lawyers up in arms. It's out of kilter internationally and raises questions about the select committee process

It's been a quiet controversy, but last week's decision by Commerce Minister Simon Power that software should not be patented - at least not unless it's "embedded" (ie, software built into a device) - was contentious none the less.

Last Thursday Power asked officials to develop some guidelines to decide what that might mean in practice. They have an unenviable job.

The Minister’s decision marks a substantial change in the law. Software inventions are currently patentable; in fact more than 200 local businesses have New Zealand patented software right now. The Patents Bill – due back in Parliament some time soon – will be a blow to these business and many others by effectively imposing a blanket prohibition on software patents. And the story of how this came to be the preferred way forward is, frankly, intriguing.

For the most part, the Bill is an uncontroversial and long overdue update of patent law.And when it was introduced that’s all it was. But then during the select committee hearings something new snuck in: clause 15(3A) and its ban on patenting software.

There is of course nothing unusual about a select committee amending a Bill; and there’s nothing odd about select committee MPs being persuaded by the argument of submitters.That is democracy in action. But in this case the addition of clause 15(3A) introduced a new element which hadn’t been hinted at in the Bill before and it wasn’t something which many of these companies directly affected had even considered, let alone submitted on.

Here’s how the process worked. In 2000 the Government launched a three stage review of the Patents Act 1953. Stage three included discussion of software patentability. At that stage submissions generally favoured software being patentable in some form. In 2003 when Cabinet considered the issue it concluded that software should continue to be patentable. (Software inventions have been able to be patented in New Zealand for at least 15 years.) The following year the draft Bill was released for public consultation; it made no mention of software and when the Bill was finally introduced to Parliament in July 2008 “software” was nowhere to be seen. In effect the Bill meant no change – software inventions were to be treated like any other invention and subject to the same novelty test.

Then in June 2009, a month after the Bill was referred to select committee and before submissions closed, an official from the Ministry of Economic Development confirmed in an interview in Computerworld that a decision had been made not to exclude software from patentability.

Again, more than 200 New Zealand businesses hold New Zealand granted software patents. Only one of those companies, Fisher and Paykel, presented a submission to the select committee. And why? Because the others genuinely believed excluding software from patentability was not a live issue before the committee.

The committee did hear from others opposed to software patents. Judging by their written submissions many seemed motivated by the misconception that the new Bill would introduce software patenting in New Zealand. As Simon Power notes in his media statement last week, “the committee received many submissions opposing the granting of patents for computer programs on the grounds it would stifle innovation and restrict competition”.Would? The truth is that software patents have been available for years in New Zealand and during that time there has been plenty of innovation and open source development.

The committee was clearly swayed by all submitters. It supported prohibiting software patents (what the open source submitters wanted), but it also sought advice from officials about allowing patenting of embedded software (the issue highlighted by Fisher and Paykel). In response, officials advised against trying to distinguish between software and embedded software – they said it would be an almost impossible line to draw in legislation.They recommended instead that MPs adopt the European model which, officials advised, was the nearest practicable fit to what the committee was after. (The European Patent Office doesn’t use the term “software patent”, but rather “computer-implemented invention”.)

But the MPs seem to have ignored that advice. Clause 15(3A) is not consistent with European law (or Australia, the UK, Singapore, Japan or the US). It is so bluntly worded that it apparently bans all software patentability, which is not what MPs on the select committee seem to have intended. In the select committee’s commentary on the Bill it states clause 15(3A) “would be unlikely to prevent the granting of patents for inventions involving embedded software”. Patent attorneys beg to differ. And now they will most certainly get the chance to do so.

In the meantime IPONZ has to draw up the guidelines to make sense of a law that says one thing while the lawmakers claim it says another.

Matt Sumpter is a partner at Chapman Tripp.He specialises in intellectual property and technology law issues.

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